Some areas are very prone to flooding (e.g. New Orleans) Because they are prone to flooding, house prices will be lower than average. Therefore, vulnerable areas of housing often attract low income households. Therefore, when floods hit the area, it is the poor who are disproportionately hit.
In response to devastating floods, the federal government may respond by guaranteeing the cost of rebuilding. This seems fair because:
- The poor cannot afford to rebuild.
- It spreads the cost of floods across the country.
If the government, didn't secure them against flooding, their price would fall significantly; this would mean the poor who live there would have lower housing costs.
Therefore, the effect of Guaranteed government relief is:
- Deals with short term problem
- Makes long term house prices in vulnerable areas higher than they should be.
- Encourages people to continue to live in unsuitable areas.
What Then Should The Government Do?It is easy to point out problems of subsidising rebuilding, it is more difficult to suggest long term solutions.
Maybe the government could give those affected credits to buy housing anywhere they like. Many may take the opportunity to move elsewhere where the risk of flooding is less. Because the government isn't promising to rebuild in vulnerable areas; house prices would fall making it cheaper for those who continue to live there. But, people will be less inclined to live in a vulnerable areas where nobody is going to insure it.
- Therefore, the next time the flood comes, the impact and cost will be much lower, because many people will have drifted away.
The inspiration for this article came from - "More Sex is Safer Sex" by Steven Landsburg.
"More Sex is Safer Sex" at Amazon.co.uk